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The Philippines' population census and growth in combination with a high urbanization level and very fragmented retail trade offers interesting opportunities for (foreign) investors.

The wholesale and retail trade industry represent a 17% GDP-share and employs 20% of the workforce.

Demographic details :

Population

88 million

Annual population growth rate

2.4%

Median age

22.8

Urbanization growth 2000 - 2020

67%

Added urban population 2000 - 2020 (est.)

29.5 million

Retail m.s. top 5 supermarket retailers

3.6%


The largest proportion of disposable income is still used for food purchase.

Total sales Food/Non-food split % + value billion :

Country

Food

Non-food

Food

Non-food

Philippines

53.6

46.4

15.86

13.74

Indonesia

63.6

36.4

25.92

14.83

Thailand

54.4

45.6

16.82

14.10

Singapore

30.6

69.4

2.53

5.74

Netherlands

28.8

71.2

23.64

58.44

Germany

27.1

72.9

130.74

351.70

USA

18.2

81.8

340.00

1,528.12


Per capita annual spending :

Country

Food

Non-food

Philippines

180.22

156.14

Indonesia

107.11

61.28

Thailand

254.85

213.64

Netherlands

1,432.73

3,585.28

Germany

1,634.25

4,396.13

USA

1,360

6,112.48



Organized food retailing remains highly fragmented.

Top 5 Supermarket retailers :

Retailer

M.S. %

SM Supermarket

1.7

Robinson Supermarket

0.6

Grand Union

0.5

Phil. Seven

0.4

Monterrey Farms

0.4

Total

3.6


The global retail opportunity report of A.T. Kearny shows a decline of the Filipino position. Other countries seem to offer more interesting near-future opportunities. But for the longer term the demographic data of the Philippines combined with market-size and fragmentation as well as other main, unique, cultural aspects (e.g. the large funds transfered back to the Philippines by the OFW every year = approxmately 8-9 billion) offer sufficient interesting conditions for investment, especially in case the attention of other main competitors is diverted elsewhere.

Consumer confidence remains high according to the MasterCard International MasterIndex of Consumer Confidence and rose to 54.8 last year compared to 34.3 in 2004.

The continuous expansion plans of the domestic modern retailgroups  are another major sign of confidence of the local (ethnic Chinese) business community in the local economy, political stability of the country, safety and opportunities of the retail industry. E.g. SM Mart, the country's largest retail conglomerate, owned by the Sy family, operates the largest shopping malls in the Philippines and maintains a strong growth record. Foreign investors would be wise to analyze the intentions of this local business community in order to be able to determine the real opportunities and ignore perceived threats.

The focus of modern retail concepts is aimed at the larger metropolitan area's such as Manila, Cebu and Davao. But the modern concepts reflect in reality only a fraction of the total retail activity in the Philippines. A very large part consists of more informal channels like the Sari-Sari stores and side-walk-vendors. This is not only because a possible lower purchase power (although average annual per capita PPP stands at over 4,000.- = 30% more than India or Indonesia) but mainly due to the unavailability of modern retail outlets. Although traditional retailing will continue to co-exist side-by-side modern retail concepts, like elsewhere Filipino consumers would prefer to spend at least a part of their disposable income in a modern retail environment. Not only Shopping Malls but also supermarkets, shoestores, clothing shops etc. of which sportsgoods and apparel retailer Toby's is a good example.

In 2006 the sales performance of modern food retail outlets will have grown 100% vs. 1996, in line with countries such as Malaysia, Indonesia and China. But whereas these countries already have a much higher penetration level of modern food-retail stores (exception China) the Philippines show only a level of 16.6%.

Penetration levels modern format food-supermarkets :

Country

Penetration level modern retail outlets

Philippines

16.6

Indonesia

30.4

Thailand

53.2

Malaysia

71.0

China

11.2


Other segments of the retail industry e.g. apparel, shoes, home appliances etc. lag even behind the food segment.

With perhaps the exception of Singapore, Filipino's are the most internationally oriented people in the Southeast Asia region. Modern, foreign retail concepts will find a ready audience. This has shown itself already in the high proliferation of modern horeca food-outlets in Manila e.g. franchise formula's like Kenny's, Burger King, Maxim's, McDonalds, Chow King, Jollybee (the last 2 are Filipino-developed and -owned). But the city also boosts a much higher level of middle-class oriented Western-style restaurants than Bangkok or Jakarta. And whereas modern shopping malls are faced with restrictions in e.g. Thailand and Indonesia (allowed number, location, opening hours) in order to protect the traditional retail outlets, this is much less the case in the Philippines.

After Indonesia the Philippines have the highest growth levels of urban population. In 15 years it is estimated that urban population will have grown with 66.6% and 29.5 million people will have been added to the existing urban population. For modern retailers this brings the additional benefit of consumer concentration. Already Metro Manila and surrounding provinces alone account for more than 20% of the total Filipino population.

An increased modern retail environment will bring many benefits for the country, especially when it concerns food retailing. Modern retailers will mean a boost for agricultural products, investment in transportation for farm supplies as well as the food processing industry on which modern food retailers rely to supply them with high-quality food products.

The agricultural sector, logistics industry as well as the foodprocessing industry should all benefit substantially from the growth (sales/m.s. and proliferation) of modern food-outlets. For the consumer it will mean the advantage of more choice and better quality products.

Source statistics :
Pacific Economic Cooperation Council
http://www.pecc.org
UN Statistical Data Philippines
http://unstats.un.org
Euromonitor International
http://www.euromonitor.com